Japan's postal savings

Big bender

Glacial moves in the reform of the postal savings giant

BANKERS call it the Hundred Years War. But could the battle to reform Japan's powerful postal savings and insurance system be nearing an end? On August 1st, Junichiro Koizumi, the prime minister, vowed again to privatise the post office, a reform at the top of his agenda. On August 5th, Naoki Tanaka, who heads Mr Koizumi's private advisory panel on postal reform, came up with sweeping proposals that include full privatisation, or even phasing out the post office's savings and insurance operations and shifting them to private institutions. There were other less potent suggestions, such as transferring its operations to a special public corporation.

The panel hopes to finalise plans by the end of August. But reform will not be easy. With ¥240 trillion ($2 trillion) of deposits and another ¥125 trillion in insurance policies, the post office is the world's biggest financial institution, controlling a quarter of Japan's household financial assets. It has enormous political clout. Most of its 271,000 employees spread across 24,700 branches are staunch supporters of the ruling Liberal Democratic Party (LDP), for which they collect votes. Postal savings and insurance also provide a shadow budget for the government by buying wads of zaito bonds, which fund the finance ministry's fiscal investment and loan programme, used to build empty roads and bridges.

The Democratic Party of Japan (DPJ) calculates that between 1990 and 2001 the assets of private financial institutions increased by ¥84 trillion. By contrast, the combined assets of the postal savings and insurance system and public pensions grew by ¥315 trillion (thanks largely to the post office), of which 80% was invested in government bonds, regional bonds and zaito bonds.

These investments skew the markets. For example, even though public debt is now 140% of GDP, government bond prices are not falling. Furthermore, only 5% of these funds find their way out of Japan, compared with 50% of funds in the private sector: that keeps the yen too strong and weakens the competitive power of many local industries, says Yoshito Sengoku, a politician in the DPJ. Reform, he argues, would channel more household money into private funds that can invest in foreign securities.

The post office affects policy in other ways. Depositors are flocking to its government-guaranteed non interest-bearing “settlement” accounts, which unlike other accounts are not capped at ¥10m. That is because the government is due to lift its guarantee on bank deposits of over ¥10m next April. This has prompted the Financial Services Agency (FSA) to come up with its latest fudge to delay deposit insurance reform. It bears a striking resemblance to the post office's interest-free accounts.

Still, there was progress of a sort last month when the Diet passed a bill that will turn the post office into an “independent” public company next April. This, insists Mr Koizumi, is a stepping stone to privatisation. But banks and life insurers, who want to compete with the post office on even terms, are not satisfied.

The post office still enjoys exemptions from taxes or deposit insurance premiums, which saves it ¥400 billion a year. Moreover, although the new postal corporation will be inspected by the FSA from next April, the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT)—to which the post office currently belongs—will decide what to do with the inspection results. MPHPT says this is natural since the post office, unlike its competitors, is there to provide fair and universal financial services for all.

Privatisation will also take time: postal savings and insurance have to be scaled down first. Even splitting postal savings into 20 pieces would create big institutions that would dwarf many regional banks. The government is meeting resistance from the LDP old guard. Mr Koizumi's advisers are said to be deadlocked. History offers no comfort either. It took the government 33 years to privatise its telecoms company, now called NTT.